The modern financial industry didn’t start in a Wall Street skyscraper. It started 3,000 miles away from the financial capital of the world, in a small theater in Cupertino, California.
In March of 2008, the power brokers in Washington and market movers in New York and London were aligned in not knowing what was happening. How bad would the failure of Bear Stearns be for the world’s economy, and for the remaining banking institutions that provided global stability? They knew there would be no good outcomes. Only various shades of awful.
At about the same time, Steve Jobs was onstage at the Town Hall theater of Apple’s Cupertino campus. He was there, ostensibly, for a pretty mundane reason: to promote Apple’s release of a software development kit (SDK) for the iPhone. But he was really there doing damage control.
The first-generation iPhone, released nine months earlier, had become the technological darling of monied trend-setters, bankers, lawyers, and traders. It also had been swiftly and relentlessly hacked. The first generation of the iPhone didn’t have any customizable apps, and it turned out that consumers really, really wanted to put their own stamp on Apple’s new, hard-to-get device. The SDK would permit third-party developers to create software for the iPhone, and the number of iPhone users who knew exactly what that meant at the time could have probably fit inside a large bar.
The iPhone was released on June 29, 2007. On July 3 of that year, a programmer with the internet alias DVD Jon modified the device to allow access to the pre-installed apps without a wireless subscription, which was certainly not the design of Apple. Then, several days later, a team of hackers obtained access to the device’s filesystem to install a custom ringtone, something else users weren’t supposed to be able to do. As a middle finger to Jobs, they posted a video on YouTube to prove they’d done it.
Numerous hacks of a similar nature dripped out until February of 2008, when Jay Freeman, also known by his hacker name “saurik,” released Cydia, a centralized platform for distributing and downloading third-party software for first-generation iPhones. If that sounds an awful lot like the App Store, that’s because it was.
That’s right: The first “App Store” wasn’t created by Apple but was born of a series of software hacks that nobody seemed to make any real money from.
As Apple was putting out the fire caused by Cydia — named for the worm that eats its way through an apple — by promoting its iPhone SDK to developers, Bear Stearns was on the brink of collapse. And, four months later, a day after Apple launched the App Store, the FDIC would seize the mortgage company IndyMac. On both days, nobody knew exactly what was happening in finance, but everybody knew enough to not care about the technology news cycle.
Nevertheless, while the banking industry was cratering, the seeds of the modern financial industry had been planted. The App Store had nudged them towards building bespoke, specific applications that performed narrow functions excellently, rather than comprehensive solutions layered with features – the “App mentality”. It was a different way of developing and bringing to market useful software.
And this shift is what gave rise to the modern FinTech industry and – for many consumers today – the modern finance industry as they experience it. Eventually, a raft of those bespoke, specific applications that performed narrow functions began to chip away at the multiple offerings of traditional financial institutions. Consumer finance is now dominated by apps: apps for payments, apps for lending, apps for investing, apps for managing money. The more that consumers rely on these apps, the less need they have for the bundled services of conventional banks.
It is tough to argue that there would be no fintech without Apple’s rollout of the App Store. But it is clear that the battle over access to the iPhone ecosystem shaped today’s FinTech companies in some nuanced ways, and that FinTech – and by extension banking in general - would look a lot different if not for those unnoticed moves Apple made back in the throes of the financial crisis.
Winston Churchill said never let a good crisis go to waste. As we find ourselves in this truly unique crisis, one thing remains certain - it will undoubtedly precipitate a paradigm shift in behavior and innovation. The crisis is two-fold in its effect, and both elements are directly dependent upon each other: depreciation of cost, and behavioral change. Because the cost of labor, rent, technology and materials is at an all-time low, the individuals with very few assets (think college students in their dorm room) ultimately thrive -- because really, what’s to lose? If you have little money, no stable job, and no secure employment prospects in sight, there’s very little risk in tinkering around on what could be the next Apple or Google.
On the contrary, large organizations who thrive during high markets suddenly find themselves in triage mode. Concerns about shareholders, stock prices and overhead dominate the model and subsequently stifle innovation. Business leaders in these organizations can’t think about how consumers may interact with new products in 3-4 years when they’re trying to keep the lights on.
Crisis has a way of birthing a new generation of entrepreneurs who exploit these changes and capitalize on inflection points like the one we’re experiencing now. While I can’t predict which industries or organizations will double-down on their ideas, I know there won’t be a shortage of innovation through and post-COVID-19.